Illinois: The state of Illinois has struggled for years with its finances. As with other troubled states, it boils down to a simple formula: Too much spending, especially on government employee pensions, and not enough revenue. Democratic Gov. J.B. Pritzker thinks a tax hike on the rich will solve the problem. It won’t.
On Friday, the state revealed that its budget deficit was $400 million larger than expected, roughly $3.2 billion. That’s not the worst of it. Illinois’ public pension agency owes $234 billion, or about $18,281 per citizen, but has only funded about 40% of that amount. Pritzker, of course, blames former Gov. Bruce Rauner. But Illinois’ fiscal ruin has been a group effort.
Pritzker ran for office in 2018 promising more spending on schools, health care and jobs, while cutting taxes and imposing a new $15 minimum wage.
Well, the state is spending a lot more, but tax cuts are now off the agenda. Instead, Pritzker will propose to double taxes paid by those with income over $225,000, the so-called rich, to 7.65% from 3.75% now.
Sorry, governor, but a new report from Moody’s Investors Service says that’s a rookie move. Moody’s bluntly predicts Pritzker’s higher taxes will lead to even more high-income people joining the mass exodus to other states, making the state’s fiscal crunch even worse.
Tax Hikes On The Rich
As Moody’s noted, “the population loss and relatively sluggish employment trends suggest a degree of economic vulnerability that poses a conundrum: revenue growth from existing sources will be too tepid to offset escalating fixed costs, while new taxes could threaten to increase the outflow of residents.”
In a recent piece, IBD focused on New York’s ills, which, no surprise, are similar to Illinois’ — high taxes, a huge out-migration of wealthy taxpayers, massive pension liabilities, chronic deficits. But, as we noted, New York Gov. Andrew Cuomo wisely ruled out raising taxes on the rich. “God forbid if the rich leave,” he said.
Illinois: The Wealthy Leave
As Moody’s noted, Illinois lost some 544,541 residents to other states from 2013 to 2018, or 4.2% of its 2013 population. The people leaving represent wealth, skills, education, know-how and, often, local roots. Illinois is watching the only thing that can save it from bankruptcy — its most talented people — flee to other states where taxes, corruption and incompetence aren’t so bad.
Worse, the state Senate approved a hike in the minimum wage to $15 an hour by 2025. That will lead to thousands of low-skilled, untrained workers losing jobs. A minimum wage, after all, is a tax on hiring low-wage workers.
Pritzker’s call to raise taxes on successful residents and on those at the bottom is a huge unforced error, one that shows his lack of basic economic understanding.
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Author: TERRY JONES